The acknowledgment of debt by the Corporate Debtor allows for insolvency proceedings under the IBC, irrespective of pending arbitration.

O R D E R

ASHOK BHUSHAN, J.

This Appeal has been filed challenging the Order dated 10.07.2024 passed in I.A. IBC No. 542(KB)2024 filed by the Appellant. The Adjudicating Authority by the Impugned Order rejected the I.A. 542/2024 against by which Order the Appeal has been filed.

2. Brief facts of the case, giving rise to the Appeal are:

i. In the Year 2015, Century Aluminium Manufacturing Company Limited, the Corporate Debtor approached the Financial Creditor, seeking financial assistance, by sanction letter dated 26.08.2015, loan against the Property for an amount of ₹12,50,00,000/- was sanctioned.

ii. Corporate Debtor created Security Interest by hypothecation of assets and equitable mortgage in favour of the Financial Creditor, State Bank of India and Canara Bank, being factory, land 9.34 acres, building and other constructions.

iii. Corporate Debtor failed to maintain financial discipline and made several defaults. First default occurred on 01.05.2019, last part payment was made on 10.02.2020. Corporate Debtor expressed its acknowledgement of outstanding liability vide letter dated 22.08.2019 and 25.05.2022.

iv. An Application under Section 7 was filed by the Financial Creditor for Financial Debt of ₹16,89,54,976.03/–. Financial Creditor, unilaterally appointed an Arbitrator to adjudicate dispute between the Parties on 26.07.2019. Sole Arbitrator vide Order dated 26.10.2021 terminated the Arbitration Proceeding, taking the view that appointment of Arbitrator is contrary to the law laid down by the Hon’ble Supreme Court. On 23.06.2023, Financial Creditor filed an Application under against the Corporate Debtor before the Adjudicating Authority Kolkata bench.

v. On 20.12.2023, Corporate Debtor filed its Reply to the Section 7 Application. After filing of the Reply by the Corporate Debtor, an Application was filed being I.A. 542/2024 on 12.03.2024, seeking reference to Arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 . The Application filed by the Corporate Debtor was opposed by the Financial Creditor.

vi. Adjudicating Authority heard Counsel for the Parties and by Impugned Order rejected the Application. Adjudicating Authority held that Section 7 Application need to be decided, the commencement of the Arbitration Proceeding before or after filing of Application is immaterial.

3. Aggrieved by the Order of the Adjudicating Authority, rejecting the I.A., this Appeal has been filed.

4. We have heard, Learned Sr. Counsel, Mr. Joy Saha appearing for the Appellant and Learned Counsel Mr Sanjeev Singh appearing for the Respondent.

5. Learned Counsel for the Appellant challenging the Order of the Adjudicating Authority contends that Arbitration Proceedings were initiated by Financial Creditor, 4 years prior to filing of the Section 7 Petition. The Financial Creditor consciously chose to refer the dispute to Arbitration. Having opted for arbitration, the Financial Creditor cannot initiate proceeding, Arbitration Proceedings between the Parties is still pending and in subsistence. By Order dated 26.10.2021, Arbitrator merely recused himself. Termination of Arbitration Proceeding takes place under Section 32 of the Arbitration and Conciliation Act, 1996 and no Order was passed within meaning of Section 32. Provisions of Section 5 and Section 8 of the , are mandatory in nature and it is the duty of the Court to refer the Parties to Arbitration in the event an Agreement for Arbitration exists. The Judgment of the Hon’ble Supreme Court in ‘Indus Biotech Pvt. Ltd.’ Vs. `Kotak India Venture (Offshore) Fund,